Target (NYSE: TGT) is up more than 100% in 2019. Compare this gain to the S&P 500 (NYSE: SPY) which is up around 26%, the retail ETF (NYSE: XRT) up around 10%, and Walmart (NYSE: WMT) up nearly 25%. Interestingly, most of Target's gains have come following its earnings report.
In late May, Target gapped up almost 10% from $69 to $76 following stronger than expected first-quarter results. The stock remained rangebound until second-quarter results when it gapped up more than 20%. Again, the company exceeded expectations and guidance was raised as well.
Remarkably, Target followed the same path in the next quarter as well. It remained rangebound in a tightly, ascending channel, digesting the gap up, and then gapped up another 15% following third-quarter results above consensus.
Investor Expectation
Three earning beats in a row, followed by double-digit percentage gap ups is evidence that investors were too cautious regarding their outlook. Part of the pessimism came from concerns that slowing economic momentum and trade war risks would impact consumer demand and lead to higher prices, leading to compressed margins and lower revenue.
Additionally, many retail stocks have struggled, especially those catering to the shrinking middle class. Companies like Macy's (NYSE: M), JC Penney (NYSE: JCP), Kohl's (NYSE: KSS), and Sears are struggling to survive. Clearly, Target has been able to successfully navigate this tricky moment in retail.
One reason that Target's future looks brighter than its peers is its success in online sales. In the third quarter, Target grew online sales by 31% with same-day delivery sales showing 80% growth. Some other factors behind the company's success are investments in refreshing stores to improve appearances and product placement.
It also has found success in opening smaller locations in urban areas and college campuses. These locations are also hubs for customers to pick up online orders the same day. Target has also been able to increase its margins by offering a wider variety of in-house brands and has made investments vertically to secure inventory at lower costs.
Conclusion
Any concern that Target was going to be a retail loser has been dispelled. The company has more in common with Walmart and Amazon given its ability to continue winning market share and make effective investments in technology.